Oil and oil stocks are on another bull run

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After a multi-month lull, investors are buying into the bullish story for oil as prices hit new multi-year highs and stocks are back in the race.

International oil prices hit new three-year highs on Thursday and continued to climb on Friday, as demand improved and supply shortages persist in some areas. Production shutdowns from Hurricane Ida continued a month after the hurricane made landfall, with nearly 300,000 barrels of oil a day still offline.

And demand is also on the rise, as restrictions on international travel begin to ease. The latest oil update from the International Energy Agency predicts that “strong pent-up demand and continued progress in immunization programs should support a strong rebound from the fourth quarter of 2021”. And OPEC recently raised its demand forecast for 2022.

“The examination of oil demand, the absence of new blockages in Europe, the robust recovery of road activity in China and the lifting of the ban on foreign travelers by the United States from November 2021 open all upside prospects over the next few quarters, ”wrote Louise Dickson, analyst at Rystad Energy.

Futures on Brent crude, the international benchmark, rose 0.8% on Friday, to $ 77.88 a barrel. West Texas Intermediate, the US benchmark, rose 0.7% to $ 73.80 per barrel. More wins are possible, wrote Oanda analyst Craig Erlam.

“Brent crude is now targeting $ 80, where it may see some resistance again, with the next test for WTI being $ 75,” he wrote.

Oil stocks were also up and had a record week. This may be partly related to the decision to


ConocoPhillips

(COP) buy


Royal Dutch Shell

(RDS.B) in the Permian Basin for $ 9.5 billion, a vote of confidence in shale drilling by one of North America’s largest producers. Other schist specialists have since jumped.


Diamondback Energy

(FANG) shares are up 14% this week, having been mired in a slump since early July.


Pioneer of natural resources

(PXD) is up 6.1% for the week.

There are other signs that supply will remain low as demand increases. While President Biden told the United Nations this week that he is open to resuming the nuclear deal with Iran, the status of that deal – and Iran’s substantial oil production – is still under consideration. suspense. The Iranian president sharply criticized the United States when he spoke at the UN, noted Helima Croft, analyst at RBC Capital Markets.

In addition, a recent survey by the Center for International Security Studies at the University of Maryland indicates that the Iranian public broadly supports a tougher negotiating position following the United States’ withdrawal from the agreement in 2018 and the reimposition of crippling sanctions, ”she said. wrote. “More than two-thirds of respondents (69%) said they did not want their government to hold talks with the Biden administration until it first reverted to the nuclear deal and fulfilled all its obligations.”

If the deal is not signed, millions of barrels of Iranian oil could remain out of the market, depleting supplies and continuing to support prices.

There are at least two jokers that could reverse the recent trend. OPEC is meeting next month and may decide to increase production to curb price gains and maintain market share. And the high prices could start to cause consumers to cut back on their oil consumption.

Write to Avi Salzman at avi.salzman@barrons.com


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Felix J. Dixon